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5th. During the second and third stages of this process, the price of all articles not exportable, is affected in a greater degree; enterprise is damped, and distress prevails.
Such are the necessary effects of an unfavorable state of foreign exchange, where the currency is metallic. As the vital principle of commerce is gain, it is probable that, generally, the price of exportable articles would, in fact, be rather higher than is stated in the preceding deductions; the timid might export specie, before the premium upon exchange exceeded the expense of its exportation; but timidity is not the predominant characteristic of commercial enterprise. On the other hand, the sanguine and enterprising, relying upon the chance of better markets, would give higher prices rather than submit to certain loss upon the exportation of specie or the purchase of bills above par.
In a country where a paper currency has been adopted, and the principles by which a redundancy may be prevented, have been enforced, an unfavorable state of foreign exchange will probably have the following effects:
1st The effect of raising the price of exportable articles, as much above what they ought to bear, as equals the premium upon foreign bills. But, in this case, gold and silver being exportable articles will rise in the same proportion as all other articles.
2d. When the price of all articles is raised so high that a loss will be incurred by their sale in foreign markets, those who have no remittances to make will withdraw from the competition. If profitable investments in other enterprizes cannot be made, a portion of the currency at their disposition will be withdrawn from circulation, by being converted into funded stock; competition will in this manner be diminished; the price of articles for exportation will be reduced by the reduction of the currency, and by diminished competition among the purchasers. It is not probable, however, that the price will fall so low as to admit of a profit in foreign markets, as long as the premium upon exchange continues above the ordinary commercial profit upon exported articles. But exportation will not be continued at a certain loss, longer than the discharge of debts previously contracted renders indispensable; foreign articles will not be imported when the loss upon remittances, whether made by bills of exchange or by the exportation of commodities, is equal to the profit upon importation; the high price given for exported articles will increase their production, and restore foreign exchange to a favorable state. The balance of trade and the rate of foreign exchange, which have given so much trouble to statesmen for two centuries past, when Teft to the laws by which they will be governed, in despite of human devices, as invariably regulate themselves, as fluids, when
unrestrained, find their common level. They will, probably, more promptly conform to these laws in a state where a well regulated paper currency prevails than where it is metallic. In the latter, the currency is exported to make up any temporary deficiency, and by that means provides against the recurrence of the evil, by indirectly causing an increase of the exportable articles of the state, and diminishing the importation of foreign articles. Until the capacity to purchase these, by the exchange of articles, shall be restored in the former, as the currency cannot be exported, the importations will be more promptly reduced to the capacity of the country to purchase, whilst the increase of its exportable articles will be the direct instead of the indirect consequence of a temporary incapacity to pay for previous importations.
3d. During the whole process of restoring a favorable state of exchange in a country where a well regulated paper currency prevails, the price of all articles not exportable, will suffer no material variation. The funding of the currency, which will probably take place, will not be immediately carried so far as to reduce the price of exportable articles so as to command a profit in foreign markets. They will, so long as the rate of exchange is unfavorable, continue to command higher prices than when the exchange is favorable. This increased price will encourage industry and enterprise, and constantly tend to augment the productive energies of the community. This effect cannot fairly be attributed to any depreciation in the currency. That will continue to bear nearly the same proportion to the exchangeable articles of the state, as when foreign exchange was favorable. It is probable even that its relation to those articles will be changed, so as to produce an appreciation of the currency; and that this appreciation will be perceived in a slight degree in the depression of the value of all articles not exportable. The effects of this appréciation will, however, be diminished by the impulse given to industry and enterprise, by the increased price of all articles which can be exported.
These are conceived to be the effects which a well regulated paper currency will have upon the foreign exchanges, and upon the domestic industry of the country which may adopt it. If the value of currency depends, like that of all other articles, upon the quantity, compared with the demand, the idea of its depreciation in raising the price of articles in the case which has been considered, must be rejected. That this position is incontrovertible, seems to have been admitted by all writers upon the subject. This admission is found in the reports which have been made to the British Parliament; in the evidence upon which those reports have been founded; and in the essays of those who have opposed
the paper system in that country, since the year 1797. The objection to the paper system, as it existed in England, was the absence of all restraint upon the issue of paper, and the supposed impossibility of imposing any efficient restraint. In fact, no attempt has been made to impose such restraint in that country, unconnected with the convertibility of bank notes into the precious metals. So far as this restraint is limited to the convertibility of bank notes into bullion, at any given rate; it is rather an attempt to regulate foreign exchange through the instrumentality of the bank, than to confine the issue of bank notes to the sound demand for currency. The restraint imposed seems to rest upon the idea that an unfavorable state of foreign exchange must be the result of a redundant currency. Nothing can be more incorrect than this. hypothesis. Considering the vitiated state of the currency of England for more than twenty years past, it is not surprising that this idea should there be entertained. During that period, the unfavorable rate of foreign exchange which generally prevailed, was, if not directly, at least indirectly attributable to the depreciation of their currency. But in this interval a favorable rate of foreign exchange more than once occurred. To what could this favorable exchange be attributed? Certainly not to the depreciation of their currency. But it would be as unjust to attribute every unfavorable state of foreign exchange to the depreciation of the currency, as to ascribe to that currency the credit of any favorable state of such exchange. The truth is that fluctuations in the exchange between two countries having a metallic currency, continually occur, and depend upon principles wholly unconnected with the idea of a depreciated currency.
If these views be correct, the only obstacles to the establishment of a paper currency, by a government having a sovereign right to establish it, is the danger of the instability and want of integrity and intelligence of the government. There is, certainly, just reason to apprehend that emergencies may arise in the affairs of every nation, in which their stability may be menaced by foreign force or domestic insurrection. In such an event, a panic might ensue, and the credit of the currency be utterly annihilated. How far the recent examples which have been adverted to in other states -how far the influence of public opinion over the conduct of governments, may be relied upon, as an efficient preventive against evils of such magnitude, must be determined by those to whom, under Divine Providence, the prosperity and happiness of nations are committed. The subject involves all the complicated interests of society, except the enjoyment of civil, political, and religious liberty. It ought to be approached with more than ordinary cir cumspection. In states the best qualified to attempt the change,
it is environed with doubt which can only be dispelled by the light of experiment. In the United States these doubts are greatly increased by the complex form of the government. In the division of between the federal and state governments, the power, line of separation is not sufficiently distinct to prevent collisions, which may disturb the harmony of the system. Collisions have already arisen, and, in the course of human events, may be reasonably expected to arise, until the line of separation by which their relative powers and duties are determined, shall be distinctly defined by practice, or by explanatory amendments of the constitution, effected according to the forms prescribed in that instrument. Upon no question will collision more likely arise than that contemplated by the resolution under which this report is submitted. No attempt to make the change has succeeded. measure when stripped of extraneous difficulties, must be admitted to be of doubtful tendency. Under the most auspicious circumstances it may prove abortive. Under circumstances in any degree adverse, it must inevitably fail. Any obstacle opposed to its execution, by one or more of the state governments, would be decisive of its fate. Their simple acquiescence in the measure would not be sufficient to secure to it that issue, to which the principles upon which it might be established, would necessarily lead. Their active co-operation would be indispensable. The banks which derive their authority from the state governments, are generally bound by their charters to discharge their notes in specie on demand. From this obligation it would be necessary to the system to relieve them. The obligation to discharge their notes upon demand, in the national currency, should be substituted for that of paying them in specie.
If these obstacles should be removed, that connected with the public debt, which has been suggested in a previous part of the report, would still remain. After the substitution of the national currency, gold and silver would be imported only in the quantity required for manufactures, and for the prosecution of those branches of trade in which they are primary articles of commerce. For these purposes, the importations would be sufficient. They might even be sufficient, and at a reasonable price, for the payment of the annual interest of the public debt. But, after the year 1824, when the sum of 10,000,000 dollars, would annually be expended by the Commissioners of the Sinking Fund, it is probable that the premium which would be paid upon it would be considerable, until the debt was extinguished. A compromise, as has already been suggested, with the public creditors, would seem to be a measure preliminary to any attempt to establish a paper currency.
It is more than probable that the attempt would not only be unsuccessful, but that it would injuriously affect the public credit.
It may, also be proper to observe, that those sections of the Union where a measure of this kind would be most likely to be acceptable, would probably derive from it the least benefit. In the West and in the South, the complaints of a deficient currency have been most distinctly heard. In the latter, these complaints are of recent date. In both they proceed in a greater degree from the disbursement of the public revenue than from any other cause. The great mass of public expenditure is made to the East of this city. The revenue accruing from imports, though principally collected in the middle and eastern states, is paid by the great mass of consumers throughout the United States. That which is paid for the public lands, although in some degree drawn from every part of the Union, is principally paid by the citizens of the West, and of the South. The greatest part of the revenue accruing from the public lands, as well as that collected in the southern states, upon imports, has been transferred to the middle and eastern states to be expended. The necessity of making this transfer, arises from the circumstance that the great mass of the public debt is held in those states, or by foreigners, whose agents reside in them: and from the establishment of dock yards and naval stations in their principal ports. This transfer will continue to be necessary until the public debt shall be extinguished, and until the other expenditures of the government can, consistently with the public interest, be more equally distributed.
If a national currency should be established, the demand for it in the southern and western states, for the purpose of transmission, would be incessant; whilst its return, by the ordinary course of trade, especially in the latter, would be slow and in some degree uncertain. The currency, being every where receivable by the government, would, for the purpose of remittance, be more frequently demanded in that section than specie, for the same reason, that the notes of the Bank of the United States and its offices command there, at this time a premium in specie. As the transfers of the public money are made by the Bank of the United States, the excitement produced by the demand for specie, or funds that can be remitted, consequent upon such transfers, has been directed against that institution. All the evils which the community, in particular parts of the country, has suffered from the sudden decrease of the currency, as well as from its depreciation, have been ascribed to the Bank of the United States, which, in transferring the public funds, has been a passive agent in the hands of the government.
It is then believed that the evils which are felt in those sections of the Union where the distress is most general will not be exten